It was a very different market reaction on Monday to the full-year results of plumbing supplier Reece (ASX:REH) than we saw for the interim back on 26 February. Then, a 5% lift in EBIT and a 20% jump in statutory earnings – 6% higher after dropping one-off items – but a steady dividend saw the shares surge more than 18% on the day to $28.50.
On Monday, an 8% lift in net after-tax profit and a lift in dividend saw the shares fall more than 9% at one stage and trade nearly 4% lower in mid-afternoon dealings. There was, in the interim result, a carefully hedged outlook from the company about the rest of the year, and it looks like from the full-year figures on Monday that the caution at the start of the year was well justified.
Reece announced an 8% increase in net profit to $419.2 million on the back of a 3% increase in sales revenue to $9.1 billion. Back in February, Mr Reece had a similar message: “As we look ahead to the second half, we expect subdued demand across our business with a softening in the environment in ANZ. We take a long-term view and will continue to invest to build a stronger business and deliver on our 2030 vision of being our trade’s most valuable partner.”
On Monday, it had the same gloomy sentiments, just a few different words and phrases: “Reece delivered a solid result in a challenging environment in FY24, supported by the teams’ ongoing disciplined execution. As we faced into the softer trading environment, we intentionally set out to refocus the team on the fundamentals of trade distribution, in core skill programs such as selling and trading. These are the foundations of the Reece model underpinning the success of our business. And whilst we expect FY25 to remain challenging, we will continue to focus on the long term. We invest through the cycle to ensure we are well placed to support customers as the market recovers.”
The company will pay a final dividend of 17.75 cents a share, up from 17 cents a year ago, which took the full-year payout to 25.75 cents a share, up from 25 cents. The small hike in the dividend seems to have been a tiny reward ahead of the strong chance that the first half of 2024-25 won’t be as bountiful as a year earlier, and that will see the size of the dividend come under pressure. Still, with a 70% shareholding in Reece, Peter Wilson and the rest of the Wilson family will be thankful for small mercies. The company also announced former NAB chief executive Ross McEwan will be joining its board from 1 October.
In contrast to the punishment for Reece shares, investors were far more generous in the way they treated the annual result from smaller rival, GWA. Even though GWA is a toddler compared to the much larger Reece, its modest 3.4% lift in annual earnings to $45.6 million was rewarded by a near 3% plus rise for the shares. Revenue was up 0.4% to $413.5 million for the 12 months, while group EBIT rose to $74.2 million for the year. Statutory after-tax earnings fell 10.4% to $38.6 million after a bunch of one-offs. The company described the result as “solid” and has lifted the full-year dividend 15% to 15 cents per share. The company said it managed to cut net debt during a tough year.
Looking ahead, the company said most of its market segments, such as supplying healthcare, volume home builders, and maintenance plumbers, “are facing headwinds” – like Reece.
